Unaudited Attributed Financial Information for Fidelity National Financial Group Tracking Stock
The following tables present our assets, liabilities, revenues, expenses and cash flows that are attributed to our FNF core business, known as FNF Core Operations (“we,” “our,” or "FNF Group"). The financial information in this Exhibit should be read in conjunction with our consolidated financial statements for the period ended December 31, 2015 included in this Annual Report on Form 10-K.
FNF Core Operations is comprised of three operating segments as follows:
Title
This segment consists of the operations of our title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title related services including collection and trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance. This segment also includes the transaction services business acquired from Lender Processing Services, Inc. ("LPS"), now combined with our ServiceLink business. Transaction services include other title related services used in production and management of mortgage loans, including mortgage loans that experience default.
Black Knight
This segment consists of the operations of Black Knight, which, through leading software systems and information solutions, provides mission critical technology and data and analytics services that facilitate and automate many of the business processes across the life cycle of a mortgage.
FNF Core Corporate and Other
The FNF Core Corporate and Other segment consists of the operations of the parent holding company, certain other unallocated corporate overhead expenses, and other smaller real estate and insurance related operations.
We have adopted certain expense allocation policies, each of which are reflected in the attributed financial information of the FNF Core Operations and the FNFV Group (see Exhibit 99.2). In general, corporate overhead is allocated to each group based upon the use of services by that group where practicable. Corporate overhead primarily includes costs of personnel and employee benefits, legal, accounting and auditing, insurance, investor relations and stockholder services and services related to FNF’s board of directors. We allocate in a similar manner a portion of costs of administrative shared services, such as information technology services. Where determinations based on use alone are not practical, we use other methods and criteria that we believe are equitable and that provide a reasonable estimate of the cost attributable to each group.
Notwithstanding the following attribution of assets, liabilities, revenue, expenses and cash flows to FNF Group, Fidelity National Financial, Inc.'s ("FNF, Inc.") tracking stock structure does not affect the ownership or the respective legal title to FNF Inc.'s assets or responsibility for FNF, Inc.'s liabilities. FNF, Inc. and its subsidiaries are each responsible for their respective liabilities. Holders of FNF Group common stock are subject to risks associated with an investment in FNF, Inc. and all of its businesses, assets and liabilities. See "Item 1A. Risk Factors - Risks Relating to the Ownership of Our FNFV Group Common Stock due to our Tracking Stock Capitalization" for further discussion of risks associated with our tracking stock structure.
FIDELITY NATIONAL FINANCIAL GROUP OPERATIONS
Balance Sheet Information
(In millions)
|
| | | | | | | |
| | December 31,
2015 | | December 31,
2014 |
| | (Unaudited) |
| ASSETS | | |
| Investments: | |
| | |
| Fixed maturities available for sale, at fair value, at December 31, 2015 and 2014, includes pledged fixed maturities of $342 and $353, respectively, related to secured trust deposits | $ | 2,558 |
| | $ | 3,025 |
|
| Preferred stock available for sale, at fair value | 289 |
| | 223 |
|
| Equity securities available for sale, at fair value | 309 |
| | 145 |
|
| Investments in unconsolidated affiliates | 125 |
| | 16 |
|
| Other long-term investments | 78 |
| | 120 |
|
| Short-term investments, includes pledged short term investments of $266 and $146 at December 31, 2015 and 2014, respectively, related to secured trust deposits | 790 |
| | 170 |
|
| Total investments | 4,149 |
| | 3,699 |
|
| Cash and cash equivalents, at December 31, 2015 and 2014, includes pledged cash of $108 and $136, respectively, related to secured trust deposits | 749 |
| | 661 |
|
| Trade and notes receivables, net of allowance of $31 and $32 at December 31, 2015 and December 31, 2014, respectively | 453 |
| | 464 |
|
| Due from affiliates | 10 |
| | — |
|
| Income taxes receivable | — |
| | 60 |
|
| Goodwill | 4,572 |
| | 4,515 |
|
| Prepaid expenses and other assets | 551 |
| | 408 |
|
| Capitalized software, net | 543 |
| | 557 |
|
| Other intangible assets, net | 802 |
| | 915 |
|
| Title plant | 395 |
| | 393 |
|
| Property and equipment, net | 278 |
| | 254 |
|
| Total assets | $ | 12,502 |
| | $ | 11,926 |
|
| | | | |
| LIABILITIES AND EQUITY | | |
| Liabilities: | |
| | |
| Accounts payable and other accrued liabilities | $ | 878 |
| | $ | 918 |
|
| Income taxes payable | 38 |
| | — |
|
| Deferred revenue | 191 |
| | 136 |
|
| Reserve for title claim losses | 1,583 |
| | 1,621 |
|
| Secured trust deposits | 701 |
| | 622 |
|
| Notes payable | 2,593 |
| | 2,683 |
|
| Due to affiliates | — |
| | 1 |
|
| Deferred tax liability | 669 |
| | 673 |
|
| Total liabilities | 6,653 |
| | 6,654 |
|
| Commitments and Contingencies: | | | |
| Redeemable non-controlling interest by 21% minority holder of ServiceLink Holdings, LLC as of December 31, 2015 and 33% minority holder of Black Knight Financial Services, LLC and 35% minority holder of ServiceLink Holdings, LLC as of December 31, 2014 | 344 |
| | 715 |
|
| Equity: | |
| | |
| FNF Group common stock, $0.0001 par value; authorized 487,000,000 shares as of December 31, 2015 and 2014; outstanding of 275,781,160 and 279,443,239 as of December 31, 2015 and 2014, respectively; and issued of 282,394,970 and 279,824,125 as of December 31, 2015 and 2014, respectively | — |
| | — |
|
| Additional paid-in capital | 3,639 |
| | 3,514 |
|
| Retained earnings | 1,377 |
| | 1,060 |
|
| Accumulated other comprehensive earnings | 7 |
| | 53 |
|
| Less: treasury stock, 6,613,810 and 375,662 shares as of December 31, 2015 and December 31, 2014, respectively | (238 | ) | | (12 | ) |
| Total Fidelity National Financial Group shareholders’ equity | 4,785 |
| | 4,615 |
|
| Noncontrolling interests | 720 |
| | (58 | ) |
| Total equity | 5,505 |
| | 4,557 |
|
| Total liabilities, redeemable noncontrolling interest and equity | $ | 12,502 |
| | $ | 11,926 |
|
See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock
FIDELITY NATIONAL FINANCIAL GROUP OPERATIONS
Statements of Earnings Information
(In millions)
|
| | | | | | | |
| | Year Ended December 31, |
| |
| | 2015 | | 2014 |
| | (Unaudited) |
| Revenues: | | | |
| Direct title insurance premiums | $ | 2,009 |
| | $ | 1,727 |
|
| Agency title insurance premiums | 2,277 |
| | 1,944 |
|
| Escrow, title related and other fees | 3,121 |
| | 2,694 |
|
| Interest and investment income | 121 |
| | 121 |
|
| Realized gains and losses, net | 6 |
| | 4 |
|
| Total revenues | 7,534 |
| | 6,490 |
|
| Expenses: | | | |
| Personnel costs | 2,514 |
| | 2,370 |
|
| Agent commissions | 1,731 |
| | 1,471 |
|
| Other operating expenses | 1,714 |
| | 1,557 |
|
| Depreciation and amortization | 345 |
| | 336 |
|
| Claim loss expense | 246 |
| | 228 |
|
| Interest expense | 122 |
| | 122 |
|
| Total expenses | 6,672 |
| | 6,084 |
|
| Earnings from continuing operations before income taxes and equity in losses of unconsolidated affiliates | 862 |
| | 406 |
|
| Income tax expense | 310 |
| | 162 |
|
| Earnings from continuing operations before equity in earnings of unconsolidated affiliates | 552 |
| | 244 |
|
| Equity in earnings of unconsolidated affiliates | 6 |
| | 4 |
|
| Net earnings from continuing operations | 558 |
| | 248 |
|
| Loss from discontinued operations, net of tax | — |
| | (1 | ) |
| Net earnings | 558 |
| | 247 |
|
| Less: Net earnings (loss) attributable to non-controlling interests | 18 |
| | (68 | ) |
| Net earnings attributable to FNF Group common shareholders | $ | 540 |
| | $ | 315 |
|
| | | | |
| Earnings Per Share | | | |
| Basic | | | |
| Net earnings per share attributable to Old FNF common shareholders | $ | — |
| | $ | 0.37 |
|
| Net earnings per share attributable to FNF Group common shareholders | $ | 1.95 |
| | $ | 0.77 |
|
| Diluted | | | |
| Net earnings per share attributable to Old FNF common shareholders | $ | — |
| | $ | 0.37 |
|
| Net earnings per share attributable to FNF Group common shareholders | $ | 1.89 |
| | $ | 0.75 |
|
| Weighted average shares outstanding Old FNF common stock, basic basis (1) | — |
| | 138 |
|
| Weighted average shares outstanding Old FNF common stock, diluted basis (1) | — |
| | 142 |
|
| Weighted average shares outstanding FNF Group common stock, basic basis | 277 |
| | 138 |
|
| Weighted average shares outstanding FNF Group common stock, diluted basis | 286 |
| | 142 |
|
| |
| (1) | The recapitalization of our stock took place on July 1, 2014. Accordingly, the outstanding shares of Old FNF common stock are presented and used to calculate earnings per share for the first six months of the twelve months ended December 31, 2014. |
See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock
FIDELITY NATIONAL FINANCIAL GROUP OPERATIONS
Statement of Cash Flows Information
(In millions)
|
| | | | | | | |
| | Year Ended December 31, |
| |
| | 2015 | | 2014 |
| | (Unaudited) |
| Cash flows from operating activities: | | | |
|
| Net earnings | $ | 558 |
| | $ | 247 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
| Depreciation and amortization | 345 |
| | 336 |
|
| Equity in earnings of unconsolidated affiliates | (6 | ) | | (4 | ) |
| Gain on sales of investments and other assets, net | (6 | ) | | (4 | ) |
| Stock-based compensation cost | 47 |
| | 39 |
|
| Tax benefit associated with the exercise of stock options | (21 | ) | | (16 | ) |
| Changes in assets and liabilities, net of effects from acquisitions: | | | |
| Net increase in pledged cash, pledged investments, and secured trust deposits | (2 | ) | | — |
|
| Net decrease (increase) in trade receivables | 8 |
| | (35 | ) |
| Net (increase) decrease in prepaid expenses and other assets | (107 | ) | | 24 |
|
| Net increase (decrease) in accounts payable, accrued liabilities, deferred revenue and other | 9 |
| | (130 | ) |
| Net decrease in reserve for title claim losses | (38 | ) | | (67 | ) |
| Net change in amount due to affiliates | (10 | ) | | (13 | ) |
| Net change in income taxes | 111 |
| | 98 |
|
| Net cash provided by operating activities | 888 |
| | 475 |
|
| Cash flows from investing activities: | | | |
| Proceeds from sales of investment securities available for sale | 775 |
| | 778 |
|
| Proceeds from calls and maturities of investment securities available for sale | 383 |
| | 458 |
|
| Proceeds from sale of other assets | 10 |
| | 4 |
|
| Additions to property and equipment and capitalized software | (179 | ) | | (124 | ) |
| Purchases of investment securities available for sale | (1,073 | ) | | (1,032 | ) |
| Net purchases of short-term investment securities | (486 | ) | | (161 | ) |
| Purchases of other long-term investments | (26 | ) | | (34 | ) |
| Contributions to investments in unconsolidated affiliates | (92 | ) | | — |
|
| Distributions from investments in unconsolidated affiliates | 44 |
| | 7 |
|
| Net other investing activities | (6 | ) | | (17 | ) |
| Acquisition of Lender Processing Services, Inc., net of cash acquired | — |
| | (2,254 | ) |
| Acquisition of BPG Holdings, LLC, net of cash acquired | (43 | ) | | — |
|
| Other acquisitions/disposals of businesses, net of cash acquired | (44 | ) | | (41 | ) |
| Net cash used in investing activities | (737 | ) | | (2,416 | ) |
| Cash flows from financing activities: | | | |
| Borrowings | 1,229 |
| | 1,504 |
|
| Debt service payments | (1,328 | ) | | (875 | ) |
| Additional investment in non-controlling interest | — |
| | (1 | ) |
| Additional investment in consolidated subsidiary | (6 | ) | | — |
|
| Proceeds from sale of 35% of Black Knight Financial Services, LLC and ServiceLink, LLC to minority interest holder | — |
| | 687 |
|
| Proceeds from BKFS IPO | 475 |
| | — |
|
| Dividends paid | (220 | ) | | (201 | ) |
| Subsidiary dividends paid to non-controlling interest shareholders | (6 | ) | | (10 | ) |
| Exercise of stock options | 25 |
| | 40 |
|
| Equity and debt issuance costs | — |
| | (1 | ) |
| Tax benefit associated with the exercise of stock options | 21 |
| | 16 |
|
| Distributions by BKFS to member | (17 | ) | | — |
|
| Purchases of treasury stock | (208 | ) | | — |
|
| Contributions to subsidiaries | — |
| | (168 | ) |
| Net cash (used in) provided by financing activities | (35 | ) | | 991 |
|
| Net increase (decrease) in cash and cash equivalents, excluding pledged cash related to secured trust deposits | 116 |
| | (950 | ) |
| Cash and cash equivalents, excluding pledged cash related to secured trust deposits at beginning of period | 525 |
| | 1,475 |
|
| Cash and cash equivalents, excluding pledged cash related to secured trust deposits at end of period | $ | 641 |
| | $ | 525 |
|
See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock
Notes to Unaudited Attributed Financial Information for Fidelity National Financial Group Tracking Stock
Period Ended December 31, 2015
(unaudited)
Note A. Basis of Presentation
Description of the Business
FNF Group is a leading provider of (i) title insurance, escrow and other title related services, including collection and trust activities, trustee sales guarantees, recordings and reconveyances and home warranty insurance and (ii) technology and transaction services to the real estate and mortgage industries. FNF is the nation’s largest title insurance company operating through its title insurance underwriters - Fidelity National Title Insurance Company, Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Alamo Title Insurance and National Title Insurance of New York Inc. - that collectively issue more title insurance policies than any other title company in the United States. Through our subsidiary ServiceLink Holdings, LLC ("ServiceLink"), we provide mortgage transaction services including title-related services and facilitation of production and management of mortgage loans. FNF also provides industry-leading mortgage technology solutions, including MSP®, the leading residential mortgage servicing technology platform in the U.S., through its majority-owned subsidiary, Black Knight Financial Services, Inc. ("Black Knight").
Recent Developments
On January 20, 2016, we entered into two interest rate swap agreements to hedge forecasted monthly interest rate payments on $400.0 million of our floating rate debt ($200.0 million notional value each) (the “Swap Agreements”). The Swap Agreements have been designated as cash flow hedging instruments. Under the terms of the Swap Agreements, we receive payments based on the 1-month LIBOR rate and pay a weighted average fixed rate of 1.01%. The effective term for the Swap Agreements is February 1, 2016 through January 31, 2019.
On July 20, 2015, we completed the recapitalization of ServiceLink Holdings, LLC through a conversion (the "ServiceLink Conversion") of $505 million of the $566 million aggregate preference amount associated with its Class A1 participating preferred units into slightly more than 67.3 million Class A common units. As a result of the ServiceLink Conversion, our ownership percentage in ServiceLink Holdings, LLC increased from 65% to 79%.
On July 20, 2015, our Board of Directors approved a new FNF Group three-year stock repurchase program, effective August 1, 2015, under which we may repurchase up to 25 million shares of FNF Group common stock. Purchases may be made from time to time by us in the open market at prevailing market prices or in privately negotiated transactions through July 31, 2018.
On May 29, 2015, Black Knight completed a redemption (the "Redemption") of $205 million in aggregate principal of its senior notes ("Black Knight Senior Notes") at a price of 105.750%. Black Knight incurred a charge on the Redemption of $12 million and also reduced the bond premium by $7 million for the portion of the premium that relates to the redeemed Black Knight Senior Notes, resulting in a net charge on the Redemption of $5 million. Following the Redemption, $390 million in aggregate principal of Black Knight Senior Notes remained outstanding.
On May 27, 2015, Black Knight InfoServ, LLC (“BKIS”), a subsidiary of Black Knight, entered into a credit and guaranty agreement (the “BKIS Credit Agreement”) with an aggregate borrowing capacity of $1.6 billion, dated as of May 27, 2015, with JPMorgan Chase Bank, N.A. as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto. FNF is not a party to and does not provide any guaranty or stock pledge under the BKIS Credit Agreement.
On May 27, 2015, we entered into an amendment to our existing $800 million third amended and restated credit agreement (as previously amended, the “Existing Revolving Credit Agreement”), dated as of June 25, 2013, with Bank of America, N.A., as administrative agent, the other agents party thereto and the financial institutions party thereto as lenders (the “FNF Amended Revolving Credit Agreement”). Among other changes, the FNF Amended Revolving Credit Agreement amends the Existing Revolving Credit Agreement to permit FNF and its subsidiaries to incur the indebtedness and liens in connection with the BKIS Credit Agreement.
On May 26, 2015, Black Knight closed its initial public offering ("IPO") of 20,700,000 shares of Class A common stock at a price to the public of $24.50 per share, which included 2,700,000 shares of Class A common stock issued upon the exercise in full of the underwriters' option to purchase additional shares. Black Knight received net proceeds of $475 million from the offering, after deduction of underwriter discount and expenses. In connection with the IPO, Black Knight amended and restated its certificate of incorporation to authorize the issuance of two classes of common stock, Class A common stock and Class B common stock, which will generally vote together as a single class on all matters submitted for a vote to stockholders. As a result, Black Knight issued shares of Class B common stock to us, and certain Thomas H. Lee Partners affiliates, as the holders of membership interests in Black Knight Financial Services, LLC ("BKFS Operating, LLC") prior to the IPO. Class B common stock is not publicly traded and does not entitle the holders thereof to any of the economic rights, including rights to dividends and distributions upon liquidation that would be provided to holders of Class A common stock. Prior to the IPO, we owned 67% of the membership interests in BKFS
Operating, LLC. Following the IPO, we owned 55% of the outstanding shares of Black Knight in the form of Class B common stock, with a corresponding ownership interest in BKFS Operating, LLC.
EPS
Included in the calculation of diluted earnings per share are convertible senior notes (the “Notes”) issued on August 2, 2011 by Fidelity National Financial, Inc. Under the terms of the indenture, if converted, a portion of the settlement may include shares of FNFV common stock. As the debt is the obligation of FNF Group, if FNF were to settle a portion of the Notes with FNFV common stock, FNF Group would reimburse FNFV Group for the shares issued upon settlement.
